Posted on April 22^nd, 2008 by Hull & Hull LLP

Suzana Popovic-Montag:  Hi, and welcome to Hull on Estate and Succession Planning.  You’re listening to Episode #109 of our podcast on Tuesday, April 22^nd, 2008.

Welcome to Hull on Estate and Succession Planning, a series of podcasts hosted by

Ian Hull and Suzana Popovic-Montag, that will provide information and insights into estate planning in Canada, from the offices of Hull Estate Mediation in Toronto, Ontario, Canada.  Here are Ian and Suzana.

Ian Hull: Hi Suzana.

Suzana Popovic-Montag: Hi there Ian, how are you?

Ian Hull: I’m just great, thanks. How you doing today?

Suzana Popovic-Montag: Good thank you.

Ian Hull: Spring has come to our cold part of the world so all is well.

Suzana Popovic-Montag: That’s for sure, I love this time of the year.

Ian Hull: Well, we’ve got probate so before we get into our ongoing discussion about what we do next, let’s just not forget that if you’re interested in commenting, please feel free to give us a call at 206-457-1985.

Suzana Popovic-Montag: Or send us an e-mail at hullandhull@gmail.com. Of course, you can also visit our blog at estatelaw.hullandhull.com as well.

Ian Hull: Now as I said, we’ve got probate and we want to sort of continue to work through the administration process. One of the – what are typically a flash point in our world when things get contentious is the payment of legacies or the lack thereof. So hoping to avoid contentiousness, let’s talk a little bit about the payment of legacies and what are legacies and what are we getting ourselves involved with.

Suzana Popovic-Montag: Well at this point Ian, what we’re talking about are gifts that are actually set out in the Will.  So a legacy is a gift in the Will and presuming that there is in fact a Will as opposed to an intestacy, then you know, the estate trustee is going to turn his or her mind to preparing cheques for the amounts of those legacies to send to the beneficiaries and to consider obtaining releases or receipts from the beneficiaries as well.

Ian Hull: Okay, sorry. That’s the great thing about podcasting. Just had a drink of water and I’m dying here. Alright, so we’ve got this specific gift outlined in the Will as opposed to the residuary gift, which we’ll talk about and we’ve talked about in other podcasts where there’s sort of a global gift of whatever’s left. But we’ve got this idea, say a $10,000.00 gift, for example, could be to a charity, could be to a niece or a nephew or, someone who’s being identified with a specific amount. One of the things that – in terms of before we get into the mechanics of it, is that I worry about is the general proposition that the Courts have continued to insist on is that you’ve got to pay these legacies.  Typically the cases say you’ve got to pay these legacies within a year of the date of death. Or if it doesn’t happen then, interest is supposed to be accruing on that gift. So you want to be careful that it’s done in a timely way. And as I say, from a mechanic’s standpoint, really this kind of thing, when people know they’re expecting a specific amount, the sooner you pay them in most cases, the better. Just to sort of keep the pot from boiling over. But anyway that’s sort of a side comment to the fact that you want to prepare the letters to the beneficiaries, get the cheques ready and get the receipts organized. Now what’s the difference with a gift of a legacy and a gift of a residue in terms of what kind of release or receipt you’re entitled to?

Suzana Popovic-Montag: Well a legacy, Ian, is usually a fixed amount and so in that case, you’re looking to obtain a receipt from the beneficiary who’s going to acknowledge the fact that they’ve received that amount of money. A release, on the other hand, is normally what we look for when we send gifts of the residue to the beneficiaries. And the reason for that is because residue is typically not set out specifically in the Will, it’s going to be what’s left at the end of the day after all the legacies and all the debts of the estate have been paid and all the other liabilities of the estate. And so it’s not quantified, it’ll have to depend on what has ultimately happened during the course of the estate administration and that’s how that amount comes about.

Ian Hull: And I find that some of my clients get a bit alarmed when I say to them, when you’re giving a legacy a specific gift to an individual or to a charity, you’re actually not technically entitled to a release per se. All you’re entitled to is a receipt to show that you actually paid it. Some of my clients get a little nervous, well if I’m going to pay it, I want a release. And as I say, in technical terms, you’re not really entitled to it. But lots of times you ask for a release as well when you pay out the specific bequest.

Suzana Popovic-Montag: Another thing that I remind my clients to keep in mind, Ian,  when they’re paying out these legacies is that when you’re paying out amounts on behalf of beneficiaries, our statute here in Ontario specifically says that you can pay an amount of up to $10,000.00 to a parent of a minor and if it’s an amount over $10,000.00 then steps have to be taken to obtain some form of guardianship, and we’ve talked about that in the past, over the minor’s property or alternatively a trustee can pay that money into Court.

Ian Hull: Okay great, well now that we’ve satisfied the legacies, and here again in Ontario and across Canada, of course, we are lurching toward the deadline of income tax filing. So let’s talk a little bit about income tax, filing returns at this point because it seems to be a good next step to consider.

Suzana Popovic-Montag Well what we know will typically happen in these situations is that the trustee is going to collect all the information and send it on to the accountant in order to prepare what we call the T1 Terminal Income Tax Return. And that’s the tax return that’s filed from the date of the deceased’s death to pick up all of the income and the things that have occurred during that course of time until they’ve died and that is prepared for the purposes of the estate.

Ian Hull: So what I will often do is tell the executor to get this stuff to the accountant obviously, but also make your own note or I’ll diarize it for them, to look for the Notice of Assessment with the T1 Terminal Return filing. You’re not going to always be personally involved with the actual filling out of the tax return, you’re going to get professional advice typically for that. But you – it doesn’t hurt to stay on top of the process and one of the things you want to look for is essentially the response from the tax authority as to whether or not it is an appropriate filing and, you know, sort of a benchmark is you can look to getting those Notices of Assessment approximately 6-9 months after filing.

Suzana Popovic-Montag And the reason we’re looking for that, of course, is so that as soon as we’ve got that in hand, we can request the Clearance Certificate from CRA so that we can get that comfort that, up until the day of the deceased’s death, CRA at least is saying that all the taxes have properly been paid.

Ian Hull: And we’ve had just as an administrative thing and somebody – some of you may run into this.  Over the years, CRA has been sort of a bit inconsistent on this point. There’s two points in time that you obviously need to get sort of a technical sign off from CRA. One is the Terminal Tax Return which we’ve just talked about.  And the other is the Final Return that you file once you want to close the estate off. And sometimes it is difficult to get this sort of interim Clearance Certificate from CRA. Sometimes they will require us to wait until we’ve filed the Final Return which, as I say, it’s a bit case by case, but it always, I think anyway, makes sense to ask our tax advisor to try to get your Clearance Certificate to the date of death after the Notice of Assessment has come in because if CRA agrees to issue it, that is truly a great release that you want to have in your pocket as an executor.

Suzana Popovic-Montag So Ian, maybe you can turn now to discuss – we talked about it a bit at the beginning about the payment of the actual residual bequest to the beneficiaries and one of the things that I thought we would mention and you eluded to it earlier, was the fact that, you know, typically there is what is called an executor’s year. A year’s frame of time during which the executor has to actually deal with the estate and at that time, once that year has expired, then bequests under the Will are going to start to incur interest possibly. When you’ve got an intestacy, however, you typically won’t even administer or pay out those bequests until the year has passed. And the reason for that is because there’s an expectation that you’ll be advertising for creditors and making sure that, you know, any expenses or liabilities of the estate are satisfied before you start making payments out on account of the estate.

Ian Hull:  So we talked – that’s right, because when we talk about this…I mean this is all about keeping the client happy. And when I’m an executor, I tell my clients, I say look, think of yourself as the person who is in charge of servicing the client, keeping them happy. One way you keep beneficiaries happy is that you properly file tax returns and you do what is being required as an administrator. But two is, and sometimes more importantly to the beneficiaries, is show me the money. And we talked about paying the legacies in a timely way.  Another option, of course, is to talk about when you have a Will, not when - as Suzana points out, you’re in an intestacy situation, to pay interim distributions to the residuary beneficiares. I remind my clients that where you can, it is a crucial step to take because they shouldn’t be treated more unfairly than the legacy gifts recipients if it is appropriate to get them some money now. And what you can do is sit down with your financial advisor and benchmark what makes sense on an interim basis to pay out, because you have to watch that you don’t pay too much out.

The reason for not paying too much out is, of course, you want to hold back for sort of ongoing – like anything. You’re running a business, you need to pay the accountants to finalize the return, you need to pay compensation to the executor, you need to consider other tax liabilities that may arise when you go to make your final filing application. So a sensible holdback is important, coupled with a timely payment of an interim distribution to the residuary beneficiaries if possible.

Suzana Popovic-Montag: And that really does underscore again the importance of actually retaining an accountant to help you with these steps because you’ll rely on their guidance in terms of some of the proposed numbers to pay out these interim distribution.

Ian Hull:  Okay, well I think that gives us a good summary of this portion of the administration. Because it is tax time, we will also tie into our theme and talk a little bit about some more tax issues that we want to keep in mind on the administration side. But I think it’s been interesting and thank you for your comments, Suzana.

Suzana Popovic-Montag: Thanks very much to you too, Ian, and just a quick reminder of our call-in number if anyone would like to comment on our podcast. The number there is 206- 457-1985.

Ian Hull:  Thanks again Suzana.

You’ve been listening to Hull on Estate and Succession Planning with Ian Hull and Suzana Popovic-Montag.  The podcast you have been listening to has been provided as an information service.  It is a summary of current legal issues in estates and estate planning.  It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.

To listen to other Hull On podcasts, or to leave a question or comment, please visit our website at www.hullestatemediation.com.

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